What Is Universal Life Insurance?

Universal Life Insurance

One of the benefits of Universal Life Insurance is that it's the most flexible type of policy you can have for yourself. After the initial premium payment, the insured has the option of paying higher or lower premiums as long as they pay the minimum payment. 

Universal policies have many similarities to whole-life policies because the idea of universal policies is basically derived from the idea of whole-life policies. Following are some aspects of universal life insurance that will help you understand the concept and make an informed decision.

What are the Types of Universal Life Insurance?

There are three main types of basic Universal Life Insurance. The Single Premium type involves one large premium payment at the beginning of the policy. This policy stays in effect as long as this payment covers the "cost of insurance," or COI, charges. 

With a Fixed Premium Universal Life Policy, the insured makes monthly or annual payments for a fixed amount of time. If an insured chooses a Flexible Premium Universal Life policy, they can choose how much to pay on their premiums as long as they make a minimum payment. The insured can also choose between a level death benefit or an increasing death benefit.

How Does Universal Life Insurance Work?

The process of a Universal Life Insurance policy can be complicated. First of all, five percent of each premium payment is used toward basic expenses, including processing charges and other fees needed to keep the policy in effect. 

The other 95 percent goes to the policy's Account Value. The Account Value earns interest which gets added to the policy each month. Although the interest rate changes, the policy guarantees at least four percent annually. 

During the life of a policy, the insured can increase or decrease their premiums as well as the amount of insurance. For instance, they can borrow money from the accumulated value, thus reducing the amount paid out after their death.

What is Variable Universal Life Insurance?

Variable Universal Life Insurance, or VUL, allows the policyholder to invest the policy's cash value in different accounts. This is similar to mutual funds in that the insured can spread the cash value over several investments. 

VUL is a form of Universal Life Insurance because it gives the insured the option of paying different premium amounts as long as they follow the policies and the IRS's regulations.

Life insurance can be a complicated idea. When you start looking at all the different types of insurance, it can be quite overwhelming. Universal Life and VUL may seem difficult to understand, but many people choose them because of their many advantages over other types of life insurance. The important thing to remember is to evaluate your needs and find the type of insurance that is best for you and your beneficiaries

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